Where did all the money go?

I was feeling a bit feverish this morning, perhaps a result of the headache I got from the Go tournament last Saturday in the Japan Club where I had two wins and two losses. The normal thing to do is to just sleep tight for a day and rest before going to work again tomorrow.

But I couldn’t do that because I had three meetings lined up today. The first was with a boutique Corporate Finance adviser where they are advising on our coming corporate exercise, the second was with our company auditor and then in the afternoon, a meeting with our corporate banker to discuss some banking facilities and to restructure the exisiting facility. And then tomorrow morning, a meeting with a leading investment banker, again for the corporate exercise.

While doing this, of course, naturally the finance side of me will take over the movie and Go side of me. Recently I read a book entitled THE WORLD IS CURVED. Of course, most people have read or heard of the book THE WORLD IS FLAT by Thomas Friedman. Ironically, I read the book over a weekend in my condo in Hyderabad and reflecting on the book in Hyderabad, I felt that I was at the right place at that time. Anyways, back to THE WORLD IS CURVED, it basically says that while Thomas Friedman’s book brilliantly described the world of commerce in goods and services, the world of Finance is essentially curved in that you can’t really see what is around the corner.

Reflecting on that book, I was of course thinking of the current economic condition that the world is in. Of course, many people thought that the crisis stems from the Subprime housing mortgage crisis but actually, the root of the problem goes further than that, even further than what is accused of Alan Greenspan, i.e. creating a housing bubble by lowering interest rate for a prolonged period of time (by the way, Greenspan’s biography THE AGE OF TURBULENCE is also a very good read and I got a lot of inpiration from it while working in Jakarta).

The thing with modern finance is just the complexity of it and thus the frequent lack of transparency in the system. Financial derivatives and structured financing masks too much of the risks involved in such financial instruments and as such exposes the holder of such instruments to very high risks, risks that they often are not really aware of due to the lack of transparency. As such, banks are “suddenly” insolvent and the government has to pump national money to rescue these troubled financial institution whereas these money would have been better used to improve the country’s infrastruture and to enrich its citizens.

So, with the government pumping so much money, in the trillions in rescue packages, it is only logical to think that those trillions are no longer in the economic system. So where did all these money go? Needless to say, they went to a small group of extremely powerful people but who are these people?

The modern world of finance is such that those who knows how to play the system will make huge amounts of money while those honest, down to earth people, will work their buttocks off day in day out, doing productive work, but finding that the money that they have earned with their hardwork is slowly eroded by the financial system, if not wholly swallowed up by those who know how to play the system.

Imagine the common American, for example, who finds that the value of his home has gone down by half and he is no longer able to pay for his mortgage while the company that he is working for is retrenching while someone in Norway has bought a repackaged asset backed securities who finds that that asset is no longer backing up the finance sufficiently and has to lose money on that investment, those money that he has saved up so hard to invest for the future. There is no more future then, and they have to start all over again, toiling day in day out, to save money again.

While some fat cats are sitting somewhere in the world, laughing at these sad and honest people. The world of finance is not fair. The world of finance is curved.

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3 Comments

Filed under Economics, Events and Happenings

3 responses to “Where did all the money go?

  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

  2. Avatar

    That’s exactly what’s happening. These CDOs, CMOs, CDSs etc… designed on Wall Street just bamboozles the common people. Allowing people to borrow money to buy houses they can’t afford is just irresponsible.

    And the Federal Reserve has decided to pump prime the economy by printing trillions of dollars to flood the US economy with liquidity to stave off recession. Things are going to go South in US, either in the next one year (or 2-3 years down the road, if they stimulus package works temporarily).

    Sigh.

  3. fallingstones

    hi allen, thx. great blog there yourself ;-)

    hi avatar!!! where are you?? i tot you are coming to the japan club?? re the economy, i just hope we can ride out of this asap….

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